UPDATE 1-IAG says Spanish flag carrier Iberia in critical state

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MADRID, June 20 (Reuters) - Spanish flag carrier Iberia has
become unprofitable in all markets, including long haul, and its
problems are critical, International Airlines Group
said on Thursday.

Last year's overhaul of Iberia, resulting in over 3,000 job
cuts, was just the beginning, Chief Executive Officer Willie
Walsh told the group's annual shareholder meeting.

"It's only a first step and Iberia needs to do more," Walsh
said.

"It's vital that everyone within the company understands
that they have to make sacrifices to help save Iberia," the
executive said in a clear call to unions bucking against salary
and job cuts enforced last year.

IAG groups together British Airways and Iberia. It trimmed
salaries at the Spanish airline last year in an attempt to
counter cut-price competition from rivals like EasyJet
and Ryanair in a severe economic downturn.

Workers staged two five-day walkouts in February and March
leading to millions of euros in losses and the cancellation of
thousands of flights.

Further strike plans were scrapped after IAG accepted a
government-appointed mediator's proposal to fire fewer people
and soften pay cuts. However, Spanish pilots' union Sepla did
not agree to the new terms and has filed a lawsuit against
Iberia for applying the measures to them.